Oracle profit edges up; sales up 25%

Shares fall on forecast, stagnant database sales

MichaelPaige

LOS ANGELES (MarketWatch) --Oracle Corp. late Thursday reported fiscal first-quarter profit edged up 2% as sales of its business-application software surged, helped by its acquisition of former rival PeopleSoft earlier this year.

But the company's shares
ORCL, -1.42%
fell more than 4% after the results were announced on stagnant sales of Oracle's key database software. Company executives also issued a sales forecast range for the current quarter that fell short of analyst expectations.

Oracle fell 60 cents to $12.92 in recent evening trading after closing the regular trading session at $13.52. The stock is off 1.5% for the year so far and has ranged from $10.93 to $14.87 over the last 52 weeks. That compares to a near 3% slump of the tech-laden Nasdaq Composite Index
$COMPQ
for the year so far.

The Redwood Shores, Calif.-based firm said profit for the period ended Aug. 31 rose slightly to $519 million from $509 million, while its earnings per share remained unchanged at 10 cents.

Excluding items such as acquisition-related expenses, the company would have earned $738 million, or 14 cents, up from $535 million, or 10 cents a share, and in line with Wall Street estimates.

As Oracle's key market in database software has matured, Chief Executive Larry Ellison has snapped up smaller makers of software applications in a bid to boost growth and better compete against rivals such as Microsoft Corp.
MSFT, -1.70%
Germany's SAP AG
SAP, -1.52%
(716460) and International Business Machines Corp.
IBM, -1.26%

Yet some investors say that strategy merely masks Oracle's fundamental challenge: almost all corporations that need and use database software already own some version of it.

"It's not a quality issue with their core database products, it's the fact that after 'X' number of years the market has become saturated," said Dan Wallen, portfolio manager and president of the Reston, Va.-based money-management firm H20 Investments.

"Oracle has got problems, big problems and they're still trying to solve them with acquisitions," said Wallen, whose firm owns Oracle shares.

Application sales surge on acquisitions

Revenue from new application licenses surged 84% to $127 million as Oracle reaped the benefits of its PeopleSoft purchase earlier this year.

Overall, sales of new software licenses increased 12% to $629 million from $563 million.

During a conference call to discuss the results, Maffei forecast a second-quarter profit before items of 19 cents a share on revenue of $3.37 billion to $3.46 billion. While the profit forecast in line with analysts' estimates, the revenue range falls below the average expectation of $3.47 billion.

Maffei predicted new software license sales would rise by 21% to 25% for the current second quarter.

The Oracle finance chief said he expects currency fluctuations to negatively impact second-quarter total revenue by one percentage point on a strengthening U.S. dollar. By contrast, the company benefited by four percentage points from positive currency effects in last year's second quarter.

Oracle generates over half of its sales outside the United States.

"While we are optimistic about the long-term demand, macro conditions including limited growth in the European economies, recent natural disasters in the Gulf Coast region, and the rise in oil price may impact our customers' buying decisions and timing," Maffei observed.

For the year, he said Oracle is comfortable with its outlook, calling for earnings of 78 cents to 81 cents a share. He declined to provide a fresh revenue outlook for the year, which had called for a range of $14.2 billion to $14.4 billion.

Speaking during the conference call, Phillips said the company's forecast "is appropriately conservative given the macro economy right now."

"But that's the view that I had of it," he offered.

Ellison added to his acquisition quarry earlier this month when Oracle agreed to buy Siebel Systems Inc.
SEBL
a struggling maker of customer-tracking software based in San Mateo, Calif., for $5.85 billion. See full story on the deal.

At the company's OpenWorld user conference in San Francisco on Wednesday, Ellison repeated earlier comments that, in the wake of the Siebel purchase, the company has no pending plans for more large acquisitions.

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